CPD questions budgetary support from World Bank

The Centre for Policy Dialogue is not in favour of the government's move to seek budgetary support from the World Bank, as the amount is not significant and it would come with a host of conditions which would undermine the policy-making independence.

The need for budgetary support from the World Bank remains unclear, as the past two national budgets did not face any major resource constraints, the think-tank said, adding that the amount that is being sought, $500 million, is not significant.

CPD made the observation at an event in Dhaka to unveil its expectations from the upcoming budget, due in June.  

At present, negotiations are on the way between the government and the World Bank to receive Development Support Credit (DSC).

In order to receive the credit, the government has already agreed to undertake a set of policy reforms, said Finance Minister AMA Muhith in the last week of February.

The policy reforms would encompass nine areas including public fund management, banking, energy, transport, ICT, public-private partnership and migrant workers; and they would be implemented in three fiscal years, starting in 2015-16.

"The CPD has always maintained that reforms, whilst much-needed, must be domestically-owned and nationally-designed."

If there is any shortfall in resources, funds may be mobilised from development partners including the WB, according to the CPD.

"Regrettably, both in case of International Monetary Fund-support and WB DSC, reform agendas are being imposed as conditionalities for receiving funds," CPD said.

This undermines both the national cause of policy making independence and also the prospects of implementation of these reforms, said the CPD.

Most of the reforms identified by the government and the WB are related to adoption of new laws, rules and action plans, and timely implementation of various projects related to infrastructure and ICT and other sectors.

While both sides have common positions with regards to a number of areas including PPP, setting up of special economic zones and infrastructure projects, there are differences in opinion over time-bound action plan to strengthen the financial sector and undertaking energy sector reforms.

As part of the reforms, the WB is also interested in including other tax-related issues including customs act and direct tax.

The multilateral lender is at one with the IMF over the introduction of a unified VAT rate instead of the existing multiple rates and automatic adjustment of energy price with international market. The research organisation said if the government and the WB reach an agreement in the coming months, the next budget will need to address a long list of reform-related issues.

The issues which are included in the first year's proposed activity list include formulation of an apex body to coordinate activities of different government agencies functioning in Dhaka city, prepare urban transport policy, finalise an action plan to integrate with regional and global markets.

A time-bound action plan will have to be drafted in to strengthen state banks along with preparation of a public fund management strategy and a formula for revenue sharing with local government.

It also has to update the telecom policy, design a strategy for increasing efficiency of existing thermal plants, revise the energy policy and prepare a strategy for reducing the cost of remitting funds from abroad.

"This is a long list and the needed activities will need to be reflected in fiscal 2015-15 budget if the support is approved in the coming months. The government will need to carefully examine the proposals before these are finalised," said the CPD.

Meanwhile, the think-tank is of the belief that the budgetary and fiscal measures for the next fiscal year should take into cognisance the global economic outlook for the near-term future.

The potential channels of transmission of the implications of the emerging scenario will need to be considered in designing the budget.

It said developments in the global markets have important consequences for the Bangladesh economy when the budget is being prepared. Thus, care must be taken to mitigate the effects of the shocks arising from the fluctuations.  It said lower international oil and commodity prices will provide additional policy spaces.

The CPD said Bangladesh, a net importer of crude oil, stands to make formidable gains from low oil prices, as the plunge in the petroleum prices is providing opportunities to oil-importing countries to reduce subsidies associated with its import.

For Bangladesh, it is important that subsidies are diverted to Bangladesh Power Development Board in fiscal 2015-16, keeping the electricity prices unchanged, it said.

The government also needs to make the best use of the opportunity and complete the annual development projects related to electricity-production within the planned deadline to cut over-reliance on the high-cost liquid to generate power, said the CPD. In general, the lower commodity prices should result in lower inflationary pressure in the domestic market.

"Hence, the government will have some policy space for using expansionary fiscal and monetary policy instruments, which can then be used to catalyse private investment and promote economic growth."

The think-tank said the upcoming budget should proactively pursue ways to generate new jobs in the domestic market by promoting private investment as overseas employment may remain subdued in the near future.

It called for prudent exchange rate management next fiscal year, as the current trend in the international currency market can reverse in the coming months.

The budget should also make allocations to promote trade facilitation measures in line with the Bali package of the World Trade Organisation.

It also said garment exports to the US are struggling, while shipment to the EU market is facing greater competition. The upcoming budget needs to consider these trends while coming up with fiscal proposals including incentives.